Amazon & Flipkart v. CCI: Validity of CCI’s order under Section 26(1) of the Competition Act, 2002

[By Ishu Gupta

The author is a student at Symbiosis Law School, Noida. 

Recently, the Karnataka High Court (‘HC’) pronounced its judgement in Amazon Seller Services Pvt. Ltd. & Anr. v. CCI and Ors. (‘Amazon/Flipkart v. CCI’), a writ petition filed under Articles 226 and 227 of the Constitution of India, 1950 seeking to set aside an order of the CCI under Section 26(1), Competition Act, 2002 (‘CA’02’) against Amazon and Flipkart. Amazon/Flipkart v. CCI involved the questions of 1) non-application of mind by the CCI for its prima facie satisfaction under Section 26(1); 2) the order of the CCI being ultra vires the objects and purposes of the CA’02; 3) bar on the CCI’s jurisdiction on account of a pending investigation by the Enforcement Directorate (‘ED’) under Foreign Exchange Management Act, 1993 (‘FEMA’).

In this post, the author shall be discussing the judgement of the Karnataka HC in Amazon/Flipkart v. CCI while gazing at the requirement of prima facie satisfaction under Section 26(1) of the CA’02. Further, the challenge to the CCI’s jurisdiction to order an investigation under Section 26(1) of the CA’02 shall be discussed. Finally, the author maps out a three-fold test for satisfying the prima facie case requirement and the jurisdiction issue to edict an investigation under Section 26(1) of the CA’02.

Factual Background-

Delhi Vyapar Mahasangh (‘informant’) had filed an information with the CCI under Section 19(1) of the CA’02 alleging the violation of Section 3(4) read with Section 3(1) and Section 4 of the CA’02 by Amazon and Flipkart, owing to the existence of preferred sellers and preferential listing on the online market places of Amazon and Flipkart. Given the information supplied by the informant and having regard to the provisions of the CA’02, the CCI passed an order under Section 26(1), thereby instructing the DG to investigate the contravention of Section 3(4) read with Section 3(1) of the CA’02 and not under Section 4, since the CA’02 does not envisage an investigation in cases of collective dominance. The order of the CCI was thereafter challenged before the Karnataka HC in two writ petitions filed by Amazon and Flipkart, separately. The Karnataka HC, while disposing off the writ petitions of Amazon and Flipkart by a common judgement, refused to quash the order of the CCI.

Decision-

Based on the arguments of the petitioners, the Karnataka HC framed the following questions:

  • What is the nature of the order of the CCI under Section 26 of the CA’02?
  • Whether a prior notice and opportunity of hearing are mandatory at the stage of issuing direction to the DG to hold an inquiry under Section 26(1) of the CA’02?
  • Whether the order of the CCI calls for interference?

In respect of questions (a) and (b), the HC decided that an order under Section 26(1) of the CA’02 is an administrative order and is not a part of the adjudicatory process. Additionally, Section 26(1) of the CA’02 does not prescribe the CCI to issue any notice to any party at the time of forming prima facie opinion. Hence, there is no requirement of serving a notice on the opposite parties. While answering question (c), the Karnataka HC relied on Competition Commission of India v. Steel Authority of India Ltd. and Ors. (‘CCI v. SAIL’) and held that the order of the CCI does not call for interference and as such the requirement of giving a reasoned order has been fulfilled by the CCI.

Analysis-

Prima facie satisfaction of the CCI-

In Amazon/Flipkart v. CCI, it was argued by the petitioners that there was no application of mind by the CCI as the CCI had not opined on appreciable adverse effect on competition (‘AAEC’) in its order. Accordingly, the prima facie case requirement under Section 26(1) was not satisfied. In various decisions of the SC and different HCs, it has been held that the CCI’s order under Section 26(1) of the CA’02 is an administrative direction to one of its own administrative wings. It is only a direction simpliciter to investigate and does not form part of the adjudicatory process. The said position is well cemented by the landmark judgements of the SCI in CCI V. SAIL and Excel Corp Care Ltd. v. CCI& Ors. Accordingly, there is no requirement to issue a notice to the opposite party or strict compliance with the principles of natural justice while ordering an investigation under Section 26(1).

The sole prerequisite for an investigation order Section 26(1) is the application of mind by the CCI in determining where the facts at hand transmit any contraventions of the provisions under Sections 3 and 4 of the CA’02. Whilst it’s true that for a contravention of Section 3(4) there must be an AAEC, which has to be proven by a market analysis based on the factors given under Section 19(3), it is incorrect to surmise that the CCI has to supply detailed reasons for its decision under Section 26(1) owing to the fact that the same can only happen after an investigation by the DG. Hence, the Karnataka HC was correct in holding that the order of the CCI does not entail an interference as the CCI had looked into the information and applied its mind in deciding the existence of a prima facie case.

Jurisdictional challenge against an order under Section 26(1)-

The petitioners had argued that the jurisdiction of the CCI was barred because of a pending investigation by the ED under FEMA. It is to be noted that Section 60 of the CA’02 provides for an overriding effect of the CA’02 over any other law in India. Furthermore, the provisions of CA’02 are in addition to and not in derogation of the provisions of other laws, according to Section 62. The Supreme Court of India (‘SC’) has conclusively decided on the issue of the ouster of the CCI’s jurisdiction in presence of sectoral regulators in CCI v. Bharti Airtel Ltd. & Ors. The SC had held that whilst the jurisdiction of the CCI cannot be ousted in competition law issues with regards to Section 3 and 4, its jurisdiction can be deferred when the imminent issues involve sectoral expertise to come to a conclusive determination. The much-celebrated Delhi HC judgement in Monsanto Holdings Pvt. Ltd. & Ors. v. CCI & Ors. also lays down that due to Sections 60 and 62 of the CA’02, the CCI’s jurisdiction to decide upon an issue envisaged under the CA’02 cannot be ousted even in presence of sectoral regulators. The jurisdiction of the CCI can only be made contingent on the findings of a sectoral regulator if the connected jurisdictional facts could be better answered by the sectoral regulator.

Keeping in view the aforesaid, the Karnataka HC has correctly decided that the argument of the petitioners is untenable in law majorly on two accounts. First, the ED is a quasi-judicial body and not a sectoral regulator for e-commerce market places under FEMA. Second, FEMA deals with the aspects of foreign investment and CA’02 with competition law issues and, therefore, there is no conflict between the jurisdiction of the CCI and the ED under the two statutes.

Three-fold test for determining the correctness of a Section 26(1) order-

Courts while sitting in review of an order of the CCI under Section 26(1) generally endeavour to balance the observance of procedural due process and the objectives of the CA’02. As explained above, Section 26(1) only calls for a prima facie satisfaction of the CCI regarding the contravention of the provisions of the CA’02. Based on the judgement of the Karnataka HC in Amazon/Flipkart v. CCI and the aforesaid discussions, the author attempts to map out a three-fold test for determining the jurisdiction of the CCI and compliance with the prima facie case requirement of Section 26(1) of the CA’02:

  1. Information supplied- whether the information transmits satisfactory allegation(s) regarding the contraventions of the CA’02?
  2. Speaking order- whether the CCI has supplied reasons for its prima facie satisfaction concerning the violation of the provision(s) of the CA’02?
  • Pending sectoral regulator proceedings- whether there is an ongoing proceeding before a sectoral regulator and the issues before the CCI require the application of sectoral expertise?

If on a plain reading of a 26(1) order, it can be inferred that the CCI has considered the facts supplied in the information and then formed an opinion on the existence of a prima facie case, the order of the CCI ought not to be interfered with in a writ petition under Article 226 of the Constitution. Further, in cases where there is a pending inquiry before a sectoral regulator, it has to be determined whether there exist common issues and there are jurisdictional facts that ought to be better decided by the sectoral regulator, given their special expertise in the sector.

Concluding remarks-

The CCI’s order under Section 26(1) is a direction simpliciter to the DG, one of its own administrative wings, to investigate the contraventions of the provisions of the CA’02. The rights and liabilities of the enterprise(s) or group against whom an investigation is caused to be conducted by the CCI are not confirmed at the investigation stage. Therefore, the HC’s under Article 226 of the Constitution should follow a minimal intervention approach while reviewing a Section 26(1) order of the CCI. The judgement of the Karnataka HC in Amazon/Flipkart v. CCI, is a welcome decision as it follows minimal intervention approach propounded by the SC in its landmark judgements of CCI v. SAIL and CCI v. Bharati Airtel Ltd., and paves way for investigation in the anti-competitive conduct of online market places such as Amazon and Flipkart for practices like preferential listing of products and lack of platform neutrality.

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